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Chapter - 6 Audit & Investigation

An auditor may be called upon to investigate in several situations: 1. To evaluate a business or investment opportunity through examining financial position and earning capacity. 2. To detect theft or fraud. 3. For tax settlement or uncovering undisclosed income. 4. At the request of potential investors, lenders, or companies reviewing investment proposals. 5. Under the provision of the Companies Ordinance 1984 in Pakistan. An investigation differs from an audit in that it is not legally required under the Companies Ordinance, examines records beyond audited statements, is not time-bound annually, and has no formally defined rights and duties for the investigator. Investigations are also performed by investigators rather than auditors

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532 views2 pages

Chapter - 6 Audit & Investigation

An auditor may be called upon to investigate in several situations: 1. To evaluate a business or investment opportunity through examining financial position and earning capacity. 2. To detect theft or fraud. 3. For tax settlement or uncovering undisclosed income. 4. At the request of potential investors, lenders, or companies reviewing investment proposals. 5. Under the provision of the Companies Ordinance 1984 in Pakistan. An investigation differs from an audit in that it is not legally required under the Companies Ordinance, examines records beyond audited statements, is not time-bound annually, and has no formally defined rights and duties for the investigator. Investigations are also performed by investigators rather than auditors

Uploaded by

Ghalib Hussain
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© © All Rights Reserved
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Chapter – 6 Audit & Investigation

Q.1 What do you understand by investigation? Under what situations is an auditor called
upon to investigate [list situations only]?
Investigation implies a systematic examination or inquiry to establish a fact or to
evaluate situation.
In general, an effort made to find out the facts, behind a particular situation, to
discover the truth is known as Investigation.
The following are the more common situations when an investigator or an auditor is called
upon to investigate:
1. Purpose of a business or shares.
2. Prospective investment.
3. Detection and thefts.
4. Prospective lending.
5. For settlement of tax liability or detection of undisclosed income.
6. Review an investment proposal on behalf of investor.
7. Under the provision of companies Ordinance 1984.
8. Losses arising from systems breakdown.
The range of clients who may commission investigations includes:
1. Companies
2. Individuals
3. The department of trade
4. Lending institutions
5. Local Authorities

Basis of distinguish Audit Investigation


Under Companies Ordinance Investigation is not compulsory under
1) Legal 1984 audit of Public Ltd the Ordinance 1984.
requirement Company is legally compulsory.
It ascertains that financial It helps to know that the financial
Main Object statement is true and fair. position/earning capacity is sound, it
2)
also deals with investigate capital and
to prove frauds.
It is carried out on annual basis It is conducted for several years at
3) Time period a
time.
It is conducted On behalf It is conducted on behalf of
Parties involved
4) of shareholders proprietors, outsiders like buyers investors,
or partners. moneylenders etc.
Records involved It is not carried out of It may be conducted even though the
5) already audited financial accounts have been audited.
statements.
It is conducted on the basis It comprises of thorough examination of
Method of
6) of test checking of selected suspected /fraudulent records.
working
records.
Audit report is addressed Its report is addressed to the party
Addressee of
7) to shareholders, partners and which arranged for investigation.
Report
owners.
It is performed by auditor It is undertaken by an investigator
8) Performers of (chartered) in respect of Public not necessarily a chartered
work Ltd Company. accountant.
Auditor of a company is He may be appointed by shareholders
appointed by shareholders of / owners / creditors, lenders,
9) Appointment company (except the first prospective investors, tax authorities
auditor appointed by director etc.
Rights, duties and liabilities of There exists no legal statement of
Rights & an auditor are laid down in rights, duties, and liabilities of
10) Duties
articles of association. the investigators.

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